Vail Daily column: Are you focusing on things you can control?
The last few weeks, we’ve been inundated with reports of the ups and downs in stock markets around the world. Our own Dow experienced record-breaking swings in a matter of minutes while fears about the health of the Chinese economy grew. These stories followed months of concern over the potential collapse of the Greek economy while its ability to service its crushing load of international debt has many people worried about a repeat of 2009. We see people reacting and pulling their invested savings out of the market. When will it all be over?
Though it would be nice to have a crystal ball to see when stability will return, we all know that no one can predict the future. Instead, as time passes, most of us become increasingly confident that we don’t know what’s going to happen. Hopefully as we realize that we don’t know what’s next, we do realize, and embrace, the power of preparation. You see, with an increase in uncertainty comes an increase in stress, which, in turn, leads to a decrease in our ability to think clearly and manage our emotions. These combined factors not only contribute to poor overall decision-making, but more specifically, with decisions about our money.
Three Bucket Theory
Knowing the importance of preparation, it’s crucial for you to ask, “How do I prepare for all this uncertainty and still make good choices?” At think2perform, we teach and utilize a model called the Three Bucket Theory. Employing this theory, especially during times of uncertainty, not only helps optimize thought clarity but also improves decision-making performance. The Three Bucket Theory begins with the basic understanding that everything in our lives falls into one of three buckets. Bucket No. 1 items are things we can control. Bucket No. 2 items are things we can influence. And finally, Bucket No. 3 items are the things in life that are out of our control. The only thing falling into Bucket No. 1 is our behavior. We can control how we respond to events, situations, choices and people in our lives. The better we are at focusing on Bucket No. 1, the more our influence grows in Bucket No. 2. When we do a better job of managing ourselves, we see our effectiveness with others improve and our life choices expand.
For example, take our personal health. When we make better choices about diet and exercise (behavior choices we can control in Bucket No. 1), we have more influence on the quality of our lives (which is Bucket No. 2). Bucket No. 3 is filled with items such as the economy, weather, stock market, etc. Most often, when we feel out of control in our lives, it’s because we’re focusing our attention on Buckets No. 2 and/or No. 3 and not concentrating enough on Bucket No. 1. Those people that are most successful in life and business exclusively focus their attention on Bucket No. 1. because it contains items that are within their control. Successful people completely forget about Bucket No. 3.
So what do buckets have to do with the turbulence in the stock market and investing?
Saving and Investing Behavior
Know this, when it comes to investing, saving and investing behavior accounts for 87 percent of portfolio growth. Simply defined, saving and investing behavior is how much someone saves and invests and how long they stay invested. This investing behavior matters more than market timing, investment selection and asset allocation, which, combined, make up the remaining 13 percent. Research shows that when people try to time the market with their investments, they’re usually wrong. In its study titled “The Quantitative Analysis of Investor Behavior,” DALBAR, a research firm out of Boston, publishes yearly data on investor returns. Since DALBAR has been publishing its results, year-after-year, investors consistently underperform their investments by a significant margin. Why are results consistently lackluster? Because investors are typically acting on their emotions, they’re buying and selling at the wrong times and they end up losing. Back to the Three Bucket Theory; focusing on trying to time the stock market is an activity that falls into Bucket No. 3, something that we cannot control.
While we can’t predict or control the stock market, we can control how much we spend, save and invest — our behavior — those activities that can be found in Bucket No. 1. Studies show that, in general, when we focus on what we can control, we worry less and have improved levels of happiness and satisfaction in our lives. Next time you find yourself feeling anxious or worrying about something in life, take a minute to reflect and see if you’re placing enough focus on Bucket No. 1.
Chuck Wachendorfer is a partner and president-dD=istribution for Think2Perform, a consulting firm designed to help businesses and individuals achieve sustained optimal performance. He can be reached at 970-926-0841 or firstname.lastname@example.org.